Week Ahead (2 February)

Wednesday 4 February – Thursday, 5 February – Eurozone latest flash inflation data and ECB rate decision in focus amid sharp Euro appreciation 

This week brings two closely linked events for euro area markets: the flash inflation estimate for January and the ECB Governing Council meeting on 4 February. Markets widely expect the ECB to keep the deposit rate unchanged at 2%, extending the hold that has now been in place for several meetings. 

The policy backdrop remains shaped by the December meeting and the minutes released earlier in January, which reinforced the ECB’s “good place” narrative. Policymakers see the baseline macro outlook as broadly benign: growth close to potential, inflation meeting the 2% target, and no immediate need to adjust rates. The December staff projections pointed to euro area GDP growth of 1.4% in 2025 and 1.2% in 2026, with inflation expected at 1.9% in 2026. At the time, headline inflation stood at 1.9% in December (down from 2.1% in November), while core eased to 2.3%, although services inflation remained elevated at 3.4%. 

The minutes confirmed that neither rate cuts nor hikes were actively discussed in December. While some members described the outlook as close to “Goldilocks”, others warned against complacency, highlighting fragile private consumption and persistent geopolitical risks. In particular, inflation risks were assessed as two-sided: wage dynamics and structural labour market tightness could pose upside risks, while weaker demand or external shocks could pull inflation lower. The overall message was continuity and that it would take a material surprise to trigger action. 

January’s flash inflation will therefore be important mainly for confirmation rather than direction. A reading broadly in line with December would reinforce the case for a prolonged hold. A renewed pickup in services or wage-sensitive components would complicate the disinflation narrative, while a sharper-than-expected decline would revive discussions about downside risks. 

Nevertheless, recent exchange rates developments have added a new variable which could re-shape ECB’s monetary trajectory later in 2026: The euro has appreciated sharply in recent weeks, rising above $1.20 for the first time in four years, largely due to hedging flows and renewed uncertainty around US foreign and trade policy. A stronger euro reduces import prices and tightens financial conditions for the bloc’s largely export-driven economies like Germany. Last week, Austrian central bank governor Martin Kocher stated that while recent gains are “modest”, further appreciation could eventually require a monetary policy response if it materially alters the inflation outlook. French central bank governor Francois Villeroy de Galhau similarly indicated that the exchange rate will be factored into upcoming decisions. 

In other words, the key question is less about this week’s decision, which is expected to be a hold, and more about whether incoming inflation data and sustained euro strength begin to shift the balance of risks in the ECB’s projections for 2026. 

Thursday, 5 February – Telecom merger debate to intensify as GSMA unveils report on upcoming guidelines 

Telecom consolidation returns to the centre of the Brussels policy debate on Thursday when the GSMA, the most influential association representing mobile operators globally, will unveil a new report advocating for a more dynamic interpretation of EU horizontal merger rules.  

While the document is already circulating among policy insiders, its formal presentation comes at a particularly sensitive moment for the industry: Last month, the Commission unveiled the long-awaited Digital Networks Act (DNA). Although originally framed as a structural response to Europe’s fragmented telecom markets and investment gap, the final proposal prioritises regulatory streamlining and governance adjustments over more ambitious intervention with Member State pushback during preparatory discussions clearly narrowing its scope. Attempts to introduce more meaningful spectrum centralisation met resistance from capitals keen to retain control over auctions, which remain fiscally and politically sensitive national competences.  

Similarly, the prospect of a mandatory “fair share” contribution from large digital platforms, widely perceived as targeting mostly US-based traffic generators, encountered limited political appetite, not least given transatlantic trade sensitivities and the fragile EU-US truce reached last summer. Some Member States even argued the DNA should take the form of a directive rather than a regulation to preserve national discretion. In the end, the Commission retained the regulatory form but significantly moderated the substance, leaving parts of the telecom sector openly disappointed by the lack of ambition. 

Against this backdrop, consolidation increasingly appears in relative terms as the most politically feasible adjustment mechanism available to address market fragmentation and scale deficits. Both the Draghi and Letta reports in 2024 reinforced this logic, highlighting Europe’s widening competitiveness gap with the US and China and stressing the need for greater scale to unlock investment and innovation. 

The GSMA report argues that EU merger assessment should place greater emphasis on dynamic efficiencies, long-term investment incentives, innovation effects and resilience considerations, rather than focusing predominantly on short-term price impacts. It calls for a more forward-looking analytical framework capable of capturing how firms invest and reposition in response to technological change. As the principal trade body representing mobile operators, the GSMA’s intervention is intended to shape the forthcoming revision of the Merger Guidelines. 

Nevertheless, DG COMP has already signalled caution: Chief Economist Emanuele Tarantino and his team recently published analysis concluding that the EU telecom sector has, on average, generated positive returns over the past decade while maintaining high dividend payout ratios, implicitly questioning the narrative that consolidation is necessary to sustain investment. Tarantino will participate in the event, alongside Daniele Calisti, Head of Unit for Merger Policy and Case Support at DG COMP. Their interventions will be closely assessed for indications of openness to incorporating dynamic investment considerations more systematically into merger analysis. 

Institutionally, enforcement remains anchored in DG COMP’s long-established approach, emphasising legal certainty, evidentiary standards and remedy enforceability. Despite more ambitious competitiveness rhetoric from other parts of the Commission, such as DG CONNECT & DG GROW, there is limited evidence at this stage of a structural shift in merger control philosophy. Following Olivier Guersent’s retirement in August 2025, the appointment of a new Director-General in early 2026 may provide further signals, but continuity remains the baseline assumption. 

Thursday, 5 February – CJEU’s Advocate General to issue opinion in Commission appeal concerning annulment of anti-dumping duties on Chinese PVA 

On Thursday, Advocate General Andrea Biondi is expected to deliver his opinion in Case C-319/24 P, Commission v Sinopec Chongqing SVW Chemical and Others, an appeal brought by the European Commission against the judgement of the General Court in Case T-762/20. The case concerns the annulment of Commission Implementing Regulation (EU) 2020/1336, which had imposed anti-dumping duties on imports of polyvinyl alcohol (PVA) originating in China. PVA is a chemical product used in a range of industrial applications, including adhesives, coatings, paper and packaging. 

In its judgement in February 2024, the General Court annulled the Regulation insofar as it concerned the applicants, Sinopec Chongqing SVW Chemical Co. Ltd and related entities, while upholding the legality of the EU’s so-called “significant distortions methodology” under Article 2(6a) of the Basic Anti-Dumping Regulation. That methodology, introduced in 2017, allows the Commission to disregard domestic prices and costs in countries deemed to exhibit significant state-induced distortions, and instead rely on external benchmarks when calculating dumping margins. 

Although the General Court confirmed the compatibility of that methodology with EU law, it found errors in the Commission’s application of the rules in the specific investigation, leading to the partial annulment of the duties. The ruling was viewed as an important clarification of the evidentiary standards required when applying the EU’s trade defence instruments. 

The Commission subsequently appealed the judgement before the Court of Justice, seeking to have it set aside and requesting that the applicants bear the costs of both the appeal and the proceedings at first instance. Therefore, the appeal could have implications for the EU’s trade defence framework, particularly at a time of heightened geopolitical and trade tensions with China. The Court will be asked to examine whether the General Court erred in its assessment of the Commission’s dumping calculations and evidentiary analysis in the PVA investigation. 

The Advocate General’s opinion is not binding on the Court of Justice, but the Court tends to follow such recommendations in most cases. While the outcome will not alter the legality of the “significant distortions” methodology itself, which the General Court upheld, it may clarify the limits of the Commission’s discretion when applying that methodology in future anti-dumping investigations. Given the increasing reliance on trade defence instruments as part of the EU’s broader economic security strategy, the judgement in this appeal could have practical consequences for ongoing and future investigations involving Chinese exporters. 

Thursday, 5 February – Bank of England widely expected to hold rates steady 

The Bank of England is widely expected to hold rates unchanged at 3.75% at its February meeting, according to an overwhelming majority of economists surveyed by Reuters. Only two of 56 respondents anticipate an immediate cut to 3.50%, with markets similarly pricing in a hold. 

The Monetary Policy Committee has been divided in recent meetings, most recently voting 5–4 in December in favour of a quarter-point cut, but the case for another move this month appears limited. Recent data have shown stronger-than-expected private sector activity, resilient retail sales and inflation edging higher again, leaving policymakers cautious about easing prematurely. UK inflation remains the highest among G7 economies. 

Although most economists expect inflation to ease in the coming months, supported by moderating wage growth and some base effects, there is not yet a sufficiently clear disinflation signal to justify a renewed majority for rate cuts. MPC member Megan Greene has recently reiterated concerns about wage-setting behaviour and its implications for services inflation. 

Looking ahead, expectations for a March cut have become more evenly balanced. Around 55% of economists surveyed expect the Bank Rate to fall to 3.50% by the end of Q1, down from a much stronger consensus in December. Beyond the near term, there is little agreement on the pace of easing, although the median forecast suggests rates could fall to around 3.25% later this year. For now, the most likely outcome is another “wait-and-see” decision, with updated forecasts and forward guidance closely scrutinised for signals on whether the MPC still intends to resume gradual easing in the spring or delay further action.